WisBusiness: JT Packard Ready for Surge in Business
VERONA -- Six years ago, JT Packard which mainly services uninterruptible power supply (UPS) systems - had respectable sales of $3.5 million.
By 2005, as the company shifted its focus to equipment maintenance, that figure had increased more than tenfold, rising to nearly $41 million. Sales could increase again by 40 percent again in 2006, according to owner Jeff Cason. The company was cited by Inc. Magazine as one of the fastest growing privately held firms in the United States last year.
Cason, 34, said he expects his companys business to surge in coming years if restrictions that limit independent companies ability to service UPS equipment are removed.
The market is huge, Cason said, and the need for UPS systems in growing. According to researchers at Lawrence Berkeley National Laboratory in California, power outages and blackouts cost the U.S. businesses about $80 billion annually.
WisBusiness.com editor Brian Clark interviewed Cason recently in his company's Verona headquarters.
Brian Clark: How did you get started?
Jeff Cason: I moved to Madison from Adams-Friendship near the Dells while my friends were going to college. I didnt go to school, but enjoyed a lot of the social aspects of Madison.
After a while, working at the fast food joints wasnt cutting it and I was about to move back home. Luckily, I found work selling appliances in Madison and through that met a guy who had a part-time job on his days off selling uninterruptible power systems, battery backups.
Clark: Were you immediately enthralled?
Cason: No. But I ended up working with him full-time from 1993 to 1996. We had slightly different business philosophies, though. I enjoyed growing the business and hiring, staffing and negotiating systems. I wanted to invest a lot more money than he did. Back then, we were mostly a company that just sold equipment.
Clark: What exactly are uninteruptible power systems?
Cason: They are backup battery systems that keep the power on when there is some sort of power outage, like from a tornado or big storm. They require regular service and testing to ensure protection in case power goes down.
Some of the devices are so small that they might just back up a personal computer, a little shoebox-size device with a battery in it.
We dont work with any of those. Most of the equipment we work with is of the size that it is electrically wired into the building. The power the system manufactures will go out and feed a whole series of panel boxes or power distribution units that have a series of breakers that support all the data center servers and phone systems.
We still sell some equipment, but 80 percent of our core business revenue comes from the annual service and maintenance agreements for these devices.
There are certain devices or loads inside a facility that cannot have even momentary interruption. A refrigerator and lighting are probably okay if they go down. But a data center shouldnt go down. And thats what a UPS does, provides an uninterruptible power supply to those devices.
Generally, the UPS will provide power for 10 to 20 minutes. Most backup generators will come on in a couple of minutes.
Clark: Do you sell to many customers in this area?
Cason: Yes. Initially, though, it was very difficult to do business here. Nobody likes me to say that, but its the truth. That was partly because of my approach to the market in terms of selling equipment. And its even more so now that we have transformed the options we have for service outside the actual manufacturer. This was a market that wanted to do it the way it had always been done.
In Dallas, San Francisco, New Jersey, Colorado and other areas, our way of doing things was much better received than here for whatever reason.
Clark: Do you think that is because people here are more conservative about new approaches to doing things?
Cason: Yes. Its taken me nine years to get Dean Health Care as a customer, but we finally have all their business. We also have WPS and Oscar Mayer, among a lot of other local companies.
Clark: What was the traditional way of doing business?
Cason: It is primarily through the manufacturers. They set up sales agents for their company who sell only their products and only in a geography that they approve.
If you are 19 years old and the number one, two and three products youd like to sell is already represented even if you think poorly compared to how you could do it then you have to change your business model if you are going to be in that space.
We didnt want to wait out the manufacturers to consider us and terminate the other sales agency. We also didnt want to have to work through consulting engineers. Call it impatience, but I didnt want to have to sell in a way I didnt like.
We werent going to call on consulting engineers and we werent going to work through an electrical contractor who was going to bundle it all together with the rest of the electrical products.
Some of this philosophy was shaped when I worked for my old employer. We decided to go national and buy lists from Hoover's and other companies and then call the UPS users themselves.
What we found was that even though we couldnt compete in a healthy way on new building construction, there was so much business of existing customers that had too many small UPSs and wanted a single big one. Or had a really old big one that they wanted to transform into redundant smaller systems with new technology.
So we took the first three or four years of my business leading up to Y2K and enjoyed a great change in philosophy in the marketplace. We did it, even though a lot of people said you cant sell these things over the phone.
Clark: But you did?
Cason: Yes. There are lots of components to the sales process that require you to be on site to verify things. We flipped the system around and hired contractors. We sent them out to review the sites, verified the systems, made sure it was right, got their installation costs, bundle them and quoted the price back to the end user.
We enjoyed great success. I remember doing a $500,000 job for Nordstrom stores from Seattle to Arizona when we had just eight employees. We did it all over the phone. We did a lot business like that.
I also aligned us with large computer manufacturers like HP or an IBM who would buy, resell and package various brands of UPSs with their overall data center hardware. Their size and wherewithal allowed me to come in and negotiate in a way that insulated me from manufacturers of UPSs who didnt want me to sell it.
Clark: Where did it go from there?
Cason: While it was neat and unique on the sales side, that system was not scalable as a long-term model on the sourcing side for an overall business plan. It took just as much to go get the product I sold as it was to sell the product. It became very difficult to staff.
Clark: And now youve evolved to managing the UPS systems.
Cason: Yeah. We were pretty successful selling, but we had a growing challenge in sourcing equipment. Then Y2K came and went. Though the sky did not fall, everybodys budgets were busted because they had bought a lot of infrastructure to replace the old computers and backup power systems.
I had a successful, profitable business, but was starting to see some of the warts of not being a good business owner. Im more of sales guy than a people manager, so I had a lot of turnover. Things at home werent going well and a divorce started at the end of 2000. That was probably the turning point.
I looked in the mirror and saw that besides the business model, the thing that had to change was me. I went out and actively found a partner in Virchow Krause to help me find a general manager.
When the manager Peter Drumm came in, he immediately identified for me that we did not have a scalable, enterprise business.
Our model was dysfunctional, though profitable. And people did not want to work there long-term because of how difficult it is to sell this technical equipment over the phone. We immediately started to look at the market for UPSs and said theres got to be something that we can do in this industry thats not as technically complex as configuring the equipment.
The interesting thing was that all of these systems when sold new had a one-year warranty. After that one-year warranty is up, 99 percent of the customers all buy a one-year maintenance agreement that gives them an insurance plan. If they have a problem, they can dial a number and someone will respond within two to four hours and fix it.
Over the years, Id listened to a lot of complaints about good machines that were getting bad service from the manufacturer. Or that they wanted us to give them a quote because the manufacturer was repeatedly canceling scheduled service.
It became such an amplified complaint by customers that they wanted better options. Still, I didnt want to get into service because that required field engineers, guys with tools located where the machines were across the country. At this time, we had eight employees.
It was the end of 2000 and we had perhaps $4 to $5 million in sales. Then a large electrical contractor in Colorado called us up and that drove us to make the change.
He said he had been hired as the owner-representative for a large software company who wanted him to go out and find alternatives for service for all the UPSs. It was such a big project that I said we probably werent interested.
But he called back and reminded me our Web site said we did service. Back then we advertised a lot of things and had lead sharing with other companies. A customer service rep talked me into pursuing the deal.
So I got an equipment list for all the sites and all the service they had. I sent it off to third parties in 11 markets including Tokyo. I got their pricing, added a markup, sent it off via e-mail and within three days even though Id never met the guy and was going to sub it all out had a $550,000 deal.
I didnt do much of anything to nurture the deal. Peter and I realized that our model could be to manage subcontractors. If an eight-person shop could win a $550,000, three-year agreement, then there might be that non-technical thing that we could do and be an annuity in our business.
There was a heck of a lot more that went on after that, but that was probably when we decided to transform the company.
Clark: How many employees do you have now?
Cason: Around 230 employees and we self-deliver service with them to nearly all of our customers. We use subcontractors abroad, but very little here. And now we are growing to maintaining generators, too. Within 12 to 18 months, we will be outfitted with a full engineering staff to work on generators.
Clark: In how many states are you now?
Cason: We are in 39 states. When we had 24 field engineers, we presented to Microsoft out in Washington for their entire national contract. We admitted that we werent able to service the portfolio of systems that they had. But we were confident of our ability to staff and retain field engineers and that we would probably hire 16 to 18 field engineers in the first 90 days if we got the contract.
They liked what they heard on a Friday and came to Wisconsin on Monday for some pretty amazing due diligence on the company, the management team and the operational metrics. It was almost a $5 million deal over three years and we were about 50 percent understaffed.
Clark: When did that happen?
Cason: About two years ago. It was just further amplification that there is a big opportunity out there. We figure it is about a $1.5 billion market and were getting just about 2 percent of it now.
Clark: Who are some of your competitors?
Cason: There are about 25 other independent service providers. But there are none with a field engineer staff greater than 10 to 12. They are all regional in nature.
Clark: I read that you helped companies get back on their feet after Hurricane Katrina. What did you do?
Cason: We are the exclusive contractor for MCI and Verizon. Utilities and telecommunications were the two most critical areas once the hurricane damage was done. Then they were in a rebuilding mode. We sent down a SWAT team of guys that we were able to pull from all areas of the country.
We staged them in RVs two to three hours away from New Orleans and around the Gulf. Some customers had us on 24-hour standby to help at their data centers. Our guys packed sandbags, switched them over to generators and did whatever they wanted us to do.
Clark: They knew it was coming, even if the government didnt?
Cason: Yes, but there wasnt a whole lot we could do proactively. For some of the software companies or computer manufacturers whose data centers host other companies, it was a preventative thing. It was more a matter of pulling together a well-rounded team to work on phone systems, cell towers, generators and getting a facility up and running where utility power was not yet available.
Clark: How do you keep field engineers on staff?
Cason: One of the things Ive done strategically and were not publicly held is push a lot of money back into the company. Were profitable. And one of the ways weve been able to keep customers satisfied and not have a lot of field engineer turn over is to be overstaffed in the field engineer side.
That benefits us in a couple of ways. Our competition on the manufacturers side and in other third parties has about 35 percent to 40 percent turnover because the manufacturers are publicly held and are trying to make as much money as possible. So they staff as little as they can. And the third party competitors dont have the financial wherewithal to grow like we did.
We have less than 3 percent turnover in the field engineer ranks. They stay longer, they sleep in their own beds and they are happier. When we have a crisis situation, we are able to pull 12 to 15 guys pretty easily from different parts of the country and not disrupt business elsewhere.
Clark: Why have you grown so much?
Cason: We still have a lot of areas to improve and we try to keep a level head. I think weve grown because this has been a market dominated by manufacturers. The UPS is a pretty critical piece of equipment, so if service was good or even a little below mediocre, there wouldnt be such interest in leaving the manufacturers. But its not.
Clark: What difficulties have you had along the way?
Cason: The UPS manufacturers all have their own service divisions which are big profit centers. And they only authorize themselves to do the work. Our ability is not only to work on a national level for Verizon, for example, but on all the brands. But brand A doesnt service brand B, but we do.
So an enterprise like Walgreens that has six different brands in 30 states could have 30 different contracts that their corporate office would have to issue. We offer a single contract, a single number to dial and next to no subcontracting.
Clark: But if the manufacturers only want their people to work on their equipment, how do you get around that?
Cason: Once the initial warranty is up, it is time for UPS owners to consider who they will buy their maintenance agreement from for a year or five years.
Our challenge has been to legitimize ourselves and prove that we are better and more agile and customer-centric. Our core business is service, not manufacturing and we focus on that.
Early on, it was very difficult because of the power of the manufacturers to say we do not authorize JT Packard. But as weve grown and picked up regional or national contracts with Oracle, Morgan Stanley, T. Rowe Price, MCI, HP and all other heavy hitters, they cant say we are not qualified.
Clark: What have the equipment makers done, if anything, to slow down your growth?
Cason: Two of the biggest manufacturers and this is probably our biggest challenge today have in the past couple of years decided to go after more service work to increase profits.
And they have installed locking software and not told the customer that they were doing it. One manufacturer is Eaton Powerware. The other is MGE, but its not Madison Gas & Electric. (chuckle) The other top UPS company is Liebert, which does not use software locks. All three are owned by big multi-billion dollar electrical conglomerates.
Anyway, after the one-year warranty is up and a customer wants to go out to bid, Eaton and MGE can say the independent does not have the software to do the work. A lot of customers have said, we never heard anything about any software. And if there is software required to work on this, it should be given to us.
My general manager worked with U.S. Rep. Tammy Baldwin, D-Wis., and explained how these manufacturers were behaving. She wrote to the U.S. Justice Department and got an investigation started. Major companies were willing to be deposed. The Wisconsin Justice Department also recently began an investigation.
Essentially, in order for the locking software to be legal, the manufacturer has to tell the customer before it is sold.
There is a case in Minnesota in which Honeywell was sued by independents who said they were locked out. The judge ruled that Honeywells sales practice disclosed that it had told the customers. But the judge said if there had not been a disclosure, he would have ruled against Honeywell.
Clark: Where do things stand now?
Cason: Unfortunately, the Justice Department shut down the investigation for resource reasons, even though it said there was merit.
About that time, we went out and bought an independent copy of the software to use ourselves. We were comfortable in doing that because our research and legal advice told us that an unauthorized use of software, which they would claim to be copyright infringement, would stand up because you cant copyright software that is necessary for the operation of a unit.
So we were pretty much prepared for a lawsuit to start by using this software. We are now two years into one federal lawsuit. Our counterclaim is anti-trust.
Clark: Do you think youll win?
Cason: We are comfortable where we think this will end up. We think it will change the industry.
Clark: It must be pretty expensive in terms of lawyer fees.
Cason: Yep, yep. There are things I cant share with you, but its pretty clear their entire plan is to see if we will run out of money. We are excited about going to trial in six to eight months.
There are similar cases dealing with software in certain watches, in printers and other equipment. They are further ahead than ours and the rulings so far are what we expect. If you dont tell your customers up front, you cant beat them over the head with three times the market price and hook em into being stuck with you.
Clark: Did you ever think you would be doing this kind of work?
Cason: No. Never in my wildest dreams did I think it would grow to this point. I would be hesitant to take full credit. It has my energy and comfort with risk, but the managers here arrive early and stay late. They are all focused. There are not cliques or cultures. I have a great relationship with the management team. They can tell me I am nuts or to cool it and I will usually listen.
In five years, weve gone from eight people to 200-plus and Ive interviewed maybe three people. It is an enterprise that went from a company that was completely dependent on the owner to make all the calls.
Ive gone from having no management team and a business model that was not scalable to one where people are pretty happy and there is very little turnover.
Clark: Was it hard to give up that control?
Cason: Not really. It was like giving up smoking. I dont know why, but I just decided to do it. First, though, I had to wipe out a little bit.
Making and having a bunch of money at 28 didnt outweigh going to work every day in an ugly environment. That part bothered me and I was financially far more nervous than I needed to be because I didnt understand finance.
Clark: Did you take that anxiety home?
Cason: Oh yeah. But I didnt go home much. That was a problem. I was here a lot. Now its a lot more fun. And I certainly dont wish for any business owner to go through what I have, including federal court cases.
But if you read about industries that have changed or been flipped upside down, many times its been done by people who have come in from the outside. Im not a field engineer and I didnt come from a UPS manufacturer. Most of the management team didnt either. We didnt know how you were supposed to do it. Thats an advantage, because most of our competitors continue to do business the same way they always did it.
Clark: Did you ever plan to go back to school?
Cason: No, but some day I might. Ive gotten a great education here, though. Every month when we close out, I find out if what felt good was actually a good move in the real world of business.
Clark: Did the lack of a degree ever hold you back?
Cason: I dont think so. Things that held me back were probably my own energy and hard-headed personality and the passion that I had for the business. When Virchow Krause helped me find a manager, they said it should be someone 10 years older than me who had a financial background and who would be ready to challenge and argue with me.
Im the one who said uncle, but they said they wanted to spend a week working with me to see how I ran things. Part of it for me, too, was just growing up. But Im certainly pleased with how things have turned out.
Clark: What do you see yourself doing in a decade?
Cason: Hmmm. I think our business will change this market. Were going to have a ton of fun. Customers are going to have options. There is now Right to Repair legislation in Congress dealing with auto manufacturers holding back the diagnostics. That could affect us.
There already is a whole lot of effort to open markets. We are just the first ones who took on UPSs. Our biggest challenge now is preparing the company for post-lawsuit when we think things will boom.
Clark: How much?
Cason: Our research shows, based on what happened with Kodak when the service playing field was leveled, that for independents who had been locked out, their business increased 10 times. We dont have comparable national competitors, so we dont know how much business could grow.
We were out of space here six months ago. We just locked up land near here that could allow us to add a couple of buildings, 100,000 square feet each. We are now at 30,000 square feet and 11,000 is office. As we grow, there could be another 200 field engineers across the country and another 100 employees in the home office.
The management team will be broader and we will do more things like service generators. My role might even change as we grow.
Cason: I can still be very passionate and involved. But I have to be conscious that Im the right guy leading it. And you never know. If someone taps on my shoulder and says there is a better leader to take the company from $60 million to $150 million and thats whats good for JT Packard, I might consider it.
Clark: How did you choose the name JT Packard?
Cason: Thats probably the most frequent question we get. I always felt it was a bad idea to use my own name for the company because I was the chief sales guy.
My whole model was to be national and grow into the advertising we had put out there. I put a bunch of prominent names in a bag like Hewlett Packard and JD Power and Associates - dumped them out on the table and JT Packard came out.
Clark: How else has life changed in the past five years?
Cason: My wife and I just had a baby two months ago. Its our first child and that has changed things. Definitely for the better. Im a different person than I was when I was just starting this company.
Clark: How did you pick Verona as a place to locate?
Cason: Our last office was in Fitchburg and I lived in Verona at the time. It seemed like a good idea to be here. There was a good deal on the land and we knew that Epic was coming out here and we wanted to minimize travel for our employees.